Good morning, and welcome to the investor briefing on Myer's announcement today of its proposed combination with Apparel Brands. Myer would like to recognize the various traditional lands on which we operate our business today, as well as acknowledging the elders, past, present, and emerging. Presenting today will be Myer Executive Chair, Olivia Wirth. All participants are in a listen-only mode. There will be a presentation, followed by a question-and-answer session for analysts and investors. If you wish to ask a question, you will need to press the star key, followed by the number one on your telephone keypad. I'll now hand over to Olivia.
Good morning, everyone, and thank you for joining us today. I also have with me here this morning, Apparel Brands Managing Director, Teresa Rendo, Myer Chief Financial Officer, Matt Bachmann, and Myer Chief Transformation Officer, Andrew Taylor, who will be on hand to answer any questions at the end of the presentation. We're gonna start on slide three today. Earlier today, we announced that Myer has entered into a binding agreement to combine with Apparel Brands. As you know, Apparel Brands is a leading specialty retailer in Australia and New Zealand, and owned by Premier Investments. It operates five unique brands: Just Jeans, JJ's, Jacqui E, Portmans, and Dotti. The proposed combination is transformational for Myer, as it has enabled us to fast-track our strategic priorities by leveraging our respective and complementary strengths to create one of Australia's leading retail platforms.
We'll start today's presentation with an overview of the transaction, and then we'll take you through a high-level overview of Myer's strategic vision and how this transaction has the ability to accelerate Myer's strategic priorities. Noting, we will cover our corporate strategy in more detail at our Investor Day, which is now scheduled in February next year. We'll then take you through an overview of the Apparel Brands business, what the combined Myer and Apparel Brands businesses will look like, before covering off next steps and opening up for questions, so let's start with an overview of the transaction on page six. Over the next few slides, you'll see details of the transaction structure, as well as the strategic and financial rationale.
The transaction structure envisages that Myer will acquire 100% of Apparel Brands from Premier, in exchange for the issue to Premier of 890 million fully paid ordinary shares in Myer, and Premier's contribution of AUD 82 million in cash. The Myer board has also agreed to declare a fully franked dividend of AUD 0.025 per share to existing Myer shareholders, provided all the conditions to the transaction have been satisfied. Premier will distribute all of its existing and new Myer shares in specie to Premier shareholders at completion. The transaction benefits will obviously accelerate Myer's ability to deliver on its key strategic initiatives, and will see at least AUD 30 million in combination benefits, with delivery of significant EPS accretion on a pro forma FY 2024 basis.
Post-transaction, Century Plaza Group will become Myer's biggest shareholder, with a pro forma of ownership of 26.8%. Premier's current shareholding in Myer is 31.2%. The combined Myer Group board will comprise Myer's existing directors, and Solomon Lew will represent Century Plaza. I'll continue in the role of Executive Chair. The existing Myer executive team will have a new addition and an experienced management team from Apparel Brands, which will include Teresa Rendo, as Managing Director of Apparel Brands, who's on the call with us today. The independent directors of Myer have unanimously recommended that Myer shareholders vote in favor of the proposed combination. This is subject to an independent expert report, concluding that the proposed combination is in their best interest.
Importantly, each Myer independent director has confirmed that they intend to vote any shares that they hold or control in favor of the proposed combination. The transaction is expected to be complete early in the calendar year of 2025, subject to a number of conditions, which include the requisite regulatory approvals being obtained, approval by a majority of Myer and Premier shareholders who are eligible to vote on this transaction, ancillary agreements being executed, including a transitional service agreement, and customary conditions such as no material adverse change. Further details on the transaction can be found in the appendix in the presentation. If we turn to slide seven, we'll outline the strategic and financial rationale, which we believe is compelling.
It significantly enhances our scale to extract growth, and operating leverage benefits will unlock significant latent potential by bringing Apparel Brands into Myer's omni-channel ecosystem. It also creates the opportunity to leverage Myer's market-leading Myer One loyalty program, which can be expanded across an enlarged and complementary customer base. This allows for a greater coverage of key demographics, but also provides significant opportunity for greater cross-shop of these customers across apparel and other categories, such as beauty and homeware. It allows Myer to expand its exclusive and private label portfolio, and further ability to leverage Apparel Brands' leading sourcing, design, and distribution capabilities, which will continue to drive efficiency and improve margin.
It also provides the further strength and balance sheet and a greater capacity to invest in growth of the combined businesses. Importantly, the transaction delivers a larger and more diversified shareholder base, with improved trading liquidity and access to capital. Let's move to slide eight, providing an overview of the combined Myer Group.
So before we move on to a more detailed look at the Power Brands later in the presentation, we'd just like to spend a few moments taking a high-level look at the combined Myer group from a financial perspective. The combined group will now see total sales grow to AUD 4 billion, operating gross profit will grow approximately 50% to AUD 1.65 billion, and EBIT will be doubled to AUD 152 million. This represents an improved EBIT margin, moving from 2.3% to a combined 3.7% from a pre-AASB 16 perspective. The combined group will have 783 stores and more than 17,300 employees. The combination delivers a significant scale.
It improves operating gross profit and EBIT margins, and an enhanced ability to invest in growth and innovate in a highly competitive and rapidly evolving retail market. Next, we thought we would take a look at strategic, at Myer's strategic vision, and we turn to slide 10. If you look at Myer today, we have some foundations to build on. We have some unique competitive strengths that we can leverage to drive future growth. We have a phenomenal brand and an engaged customer. Myer has a hundred and twenty-four years of retail heritage and ranks as the seventh most trusted brand in Australia. This provides a comprehensive offer to a broad, and a broad appeal to Australians. We have a leading loyalty ecosystem.
Our Myer One program is one of the largest and most engaging loyalty programs in Australia, with more than 10 million members and a tag rate of 77%. We have a strong interconnected store network and a significantly scaled online business, which represents over 20% of our sales. Finally, we have a solid revenue base that has stabilized our financial performance, providing us a strong foundation to maximize future opportunities. With these strong foundations, we are well placed to reposition our business to growth. We turn to slide 11. As we look ahead, we have six clear strategic priorities for us to be successful. We want to appeal to a new and underpenetrated customer segments. Our focus must remain on delivering a stronger product proposition, particularly across apparel and beauty.
We need to expand Myer's already scaled omnichannel and online capability, sales, and online offer. We see huge potential in unlocking further value through Myer One and creating a broader loyalty ecosystem. We must continue to focus on delivering a winning in-store experience with greater productivity across our store portfolio, including consideration of new store formats. And finally, we must drive overall trade excellence by driving greater efficiency and margin improvement across the full value chain, which will enable investment in business and fuel growth. If we turn to slide twelve, we'll focus on the power of Myer and apparel brands combined. The combination represents a significant step change in our ability to accelerate delivery against these strategic priorities. Together, the two businesses have a wide collection of brands for all Australians.
By curating and growing our portfolio of Myer exclusive and private label brands with Apparel Brands, such as Just Jeans and Dotti, we can appeal to different shoppers that are complementary to our Myer existing customer base. The combination also allows us to catapult growth by expanding Myer One across an enlarged customer base and retail network, and to accelerate growth by leveraging advanced data capabilities and delivering on cross-shop opportunities. Research conducted with CommBank iQ shows that 40% of customers who shopped at Apparel Brands in the past 12 months already have a Myer One card.
Demonstrates the significant potential for cross-shopping going forward. Apparel Brands' experience across design, sourcing, and distribution are invaluable, and they will be invaluable to Myer and will enable us to enhance our Myer exclusive brand offering by leveraging their extensive global supply base to get product to market faster and more efficiently.
This will be at a considerably greater scale than what Myer has today. The combined executive leadership team brings together depth of expertise in Australian retail, sourcing, design, support services, operations, and customer experience. The footprint of seven hundred and eighty-three stores will increase access to a great proportion of the population, and our combined e-commerce offerings create scale and deliver a much stronger and compelling omnichannel offering.
The combined group will have an enhanced scale and revenue, therefore improving our operating leverage. It also delivers a stronger balance sheet and a greater capacity to invest in growth. Importantly, it will also provide us with a larger and more diversified shareholder base, with improved trading liquidity and access to capital. If you turn to slide thirteen, this really sums up the offering from a broader retail engine perspective.
All of this leads to Myer's group advantage, a retail engine that's underpinned by Myer One, and the creation of a more connected customer, which includes a strong loyalty program driving new and more engaged customers, a portfolio of attractive and complementary brands appealing to a broader customer base. The superior design, sourcing, and distribution capability, and expansive and enhanced omnichannel opportunity, underpinned by a more connected, engaged Myer One customer, allowing for personalization and delivering more insights to better inform business decision-making. This engine will fuel our growth, and as a group, we'll be in a much stronger proposition, delivering greater value than the sum of the parts. Now, for an overview of Apparel Brands. If we move to slide 16, as you know, Apparel Brands is a leading specialty retailer in Australia and New Zealand.
It operates an extensive network of 719 stores, has more than 5,500 team members, and generated AUD 791 million in sales in FY 2024, of which 15% originated from online. The sales of each brand is shown on this slide, and you can see that in FY 2024, Apparel Brands achieved GP margins of 58% with an EBIT margin of 9.7%. Apparel Brands' five much-loved fashion brands each have a unique offering and distinctive market position that cater to a broad customer base that is highly complementary to Myer. Target demographics range from younger females in Dotti to a broader and more mature customer in Jacqui E. If you now turn to slide 17, and here we outline Apparel Brands' store network.
You can see on this page that it has a strong national coverage, with stores located in all major retail centers across Australia and significant coverage also in New Zealand. Of its 719 stores, 90% are in shopping centers as opposed to high street, 63 are DFO stores, and by brand, the breakdown is 237 for Just Jeans, 192 Jay Jays stores, 92 Portmans, 106 Dotti stores, and 92 Jacqui E. This is complemented by the Apparel Brands multi-brand online platform. Move to slide 18. Apparel Brands is renowned for its best-in-class retail and trade excellence and its highly experienced management team, and has a strong track record of consistently delivering strong operational and financial outcomes. We do see enormous potential in applying their retail operating principles to drive operational excellence across Myer.
Adoption of these principles will enable us to deliver stronger DNA and market fit for our exclusive and private label offerings, as well as a wide range of high-quality, great value products for all target customer demographics. Importantly, these principles will further facilitate our ability to drive growth, expand GP and EBITDA margins, store activity, and online penetration. We now move to slide nineteen. We'll outline the overview of the combined Myer group. So having talked about Apparel Brands, we'll now switch gears and discuss how this comes together for the Myer group. On page twenty, you can see the combination together of highly complementary store footprints to create seven hundred and eighty-three store network across Australia and New Zealand, with national coverage in all key metro and regional locations that underpin our omnichannel ecosystem. Slide twenty-one.
By encompassing Apparel Brands into Myer one ecosystem, we believe there are immediate benefits for our business model. This will enable us to leverage our current retail ecosystem and capabilities. We'll be able to access a larger pool of customers and increase our market share, given the complementary nature of our respectable, our respective customer base. This creates huge potential for us to leverage Myer's expanded data ecosystem and partnerships to reach new Apparel Brand customers.
Augmented and enriched data will provide us with greater insight and enable us to identify collective growth and growth potential via AI and machine learning models and customer profiling analysis. This will help us improve business efficiency through insight-led decision-making. We'll also be able to help gauge deeper understanding of cross-sell opportunities across fashion brands, switching between Myer and Apparel Brands.
It gives us the ability to trade into similar adjacent categories, including other Myer department store categories like beauty, home, and kids, and into other occasions, such as gift giving. It also offers more fashion options for existing younger Myer customers. Overarching all of this will be our rewards and recognition program, which we can use to drive increased purchase frequency and increase life value via our lifecycle management and penetration. In terms of scale and profitability metrics on slide 22, you can see the pro forma combined FY 2024 financials before synergies and the immediate quantum leap in the combined group delivered. Total sales will exceed AUD 4 billion, a 24% increase on Myer standalone revenue alone. Operating gross profit improved by 38% to AUD 1.65 billion, and our GP margin percentage improves by 4.1 percentage points to 40.7%.
Combined EBIT of AUD 152 billion represents a 101% improvement, and EBITDA margin percentage at 3.1% is up 1.4 percentage points. As I mentioned, we'll now switch to the combined benefits. At the start of the presentation, we believe this combination of Myer and Apparel Brands is expected to generate combination benefits of at least AUD 13 billion on a run rate basis. Key areas where we expect to see combination benefits include the expansion of Myer One across Apparel Brands. We believe that there's the ability to optimize latent capacity across our combined distribution centers and logistics network. We see significant benefits deriving from accelerating the full potential of our Myer exclusive brands through enhanced product development and sourcing capabilities and scale opportunities.
We plan on applying Apparel Brands' operational expertise and best practice processes to improve the performance of Marcs and David Lawrence, and there's also an opportunity to enhance and optimize the group's store footprint to drive further operating leverage and efficiency. We plan on leveraging Myer's exceptional e-commerce capabilities to drive Apparel Brands' online penetration and deliver incremental sales. We'll also be taking a disciplined approach to cost management, driving more efficiencies.
We also intend to explore a refinancing in the near term that has the potential to generate annual savings in interest and financing costs, so before we wrap up and open up for questions, I thought it was worthwhile running through the proposed next steps of the transaction, which is outlined on page 25. We anticipate the notice of extraordinary general meeting will be released by Myer and Premier in December 2024.
The AGM of Myer shareholders will take place towards the end of January 2025, as will the AGM of Premier shareholders. Subject to respective shareholder and regulatory approvals, completion is expected to occur in early 2025. So in wrapping up, I'll conclude the formal presentation for today, and I'd like to reiterate how transformational the combination of Myer and Apparel Brands is for our business. It materially enhances our scale to extract costs and operating leverage benefits.
It unlocks significant latent potential by bringing Apparel Brands into Myer's omni-channel ecosystem and creates an opportunity to leverage Myer's market-leading Myer One loyalty program and across an enlarged customer base. There is significant opportunity to leverage Apparel Brands' excellent sourcing, design, and distribution to better drive efficiencies and margins, and the ability to strengthen our own private label and exclusive brand capability.
It is expected to generate at least AUD 30 million of annual run rate combination benefits with significant EPS accretion on a pro forma basis. Importantly, the transaction delivers a larger and more diversified shareholder base with improved trading liquidity, strengthened balance sheet, and greater access to capital, which will ultimately enable a greater capacity to invest in the future. We'll end there, and we're open and happy to take questions.
Thank you, Olivia. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Mark Wade, CLSA. Please go ahead.
Hi, good morning, team. I'm listening carefully to everything you've said then, Olivia. It's still not clear to me, though, why you're the natural owner of Apparel Brands. It's gonna introduce a lot of complexity into the business. You'll go from owning, you know, a few stores and many brands to many stores and fewer brands you're taking on. So just, it doesn't feel like the right fit. Can you convince me otherwise?
We're absolutely convinced, and we've obviously been through three months of due diligence to crystallize why we believe that this is the right acquisition at the right time. If you take a step back about what the strategic imperatives are, which I outlined previously around what Myer's future is, we undertook a strategic review. We identified that there are a number of areas where Myer saw there are opportunities for future growth. One of them was in product, including private label business and our opportunity to rethink our apparel offering. At that time, we approached Premier because we thought there was a natural fit with the skill capability that Apparel Brands have.
They're absolute experts at running these five very distinct brands across a broad cross-section of demographics, and they're a highly efficient business. Their expertise in sourcing is absolutely market leading. And so we believe that the combination of these two assets, as I've outlined, actually is both these components make it greater than the whole. It will ensure that we are future fit. We will ensure that we have the right focus on our product. It will ensure that we can grow our Myer One program, and continue to build up our customer and data capacity. It will ensure that we have a stronger financial position going forward. And in terms of... Let me just address the point around complexity.
I mean, there's a highly capable team running Apparel Brands, and that will continue. Equally, there's a highly effective team at Myer that are running the Myer business, and so that doesn't change either. We're very focused on ensuring that both Apparel Brands and Myer can continue to trade the day-to-day, and then we'll work towards the synergies going forward. So, we believe that we are the natural owners. Both businesses are very much focused on the Australian market. We have an incredible reach across the Australian population, and importantly, this will allow us to invest in the growth and accelerate into the growth that we see available for Myer. It gives us scale like we've never seen before.
It gives us scale in sourcing, it gives us opportunities from a supply side perspective and also how we think about our network and distribution. So, we're very confident. We've spent a considerable amount of time. Our initial thesis has absolutely been backed up during this process, and we believe that this ultimately will not only deliver for our customers, but it will definitely deliver for our shareholders.
Fair enough. And just to be clear, do you plan to operate them as independent businesses, or are you gonna somehow integrate them, like, in session?
Yeah, look, absolutely, from day one. Look, we're very focusing on making sure we, you know, we take a really consistent approach to running the business. We're absolutely focused on de-risking this transaction. We'll be running these businesses side by side. But we have identified opportunities where both will benefit, and in time, collectively, the management team will focus on where those opportunities are. So it'll be approach of focusing on the day of trade, running these businesses as they are, and then over time, really focusing on where those combination benefits are, whether that's sourcing, whether that's loyalty, whether that's e-com-...
There is a multitude of areas that we can collectively work on, but we will be single-mindedly focused on delivering the trade of today, while focused on making sure that we deliver on the medium to longer term opportunities, that both businesses will deliver and both businesses deliver for our shareholders.
Okay, thanks so much.
We have a plan. We do have a plan, and I guess the TSA also gives great flexibility to ensure that we're methodical about the way we go about any form of combination and integration into the future.
Okay, all the best. Talk again. Thank you.
Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from Ben Gilbert with Jarden. Please go ahead.
Good morning.
Hey Ben.
Hi, how's it going? Congratulations. Just a couple of questions from me. Just, just on people retention, there's been a lot of discussion about recently, just how you've managed that, because obviously these brands have done extremely well, over the last few years on a relative basis, just how you've focused on people retention.
Yeah, look, people are absolutely critical, and I, you know, I've had the absolute pleasure of spending significant time doing DD with the management team at Apparel Brands. And I'm very confident that as part of this acquisition, we're getting some phenomenal talent. Basically, when you have the combination of both these businesses with Apparel Brands and Myer, it's a very exciting retail business that we're growing. And so I know that we will attract the best talent to the business to make sure that we can deliver on the customer promise, and we can deliver on the shareholder returns. And to be honest, like with any business, you know, you see there's always a change of personnel through the years, and that's part of the day-to-day running of the business.
I'm not worried about the future in terms of attracting talent. I know we can. I think there's a phenomenal team coming over from Apparel Brands. I'm excited about collectively, what the Myer team and the Apparel Brands can do. And importantly, from a career perspective, this is gonna be a great place to work. You know, from a retail perspective, this provides incredible career opportunities. And I know there are members of my team currently at Myer that will see great opportunities for them in the future for their own career, in specialty stores. So, no, I'm not worried. I'm excited, and I know that we're going to grow into these opportunities.
The people are always the engine of our retail business. They provide our service to our customers. They've got the smarts to get the right product into store, and I'm very confident in both the team that Teresa has and also the broader team here at Myer. I know from speaking to many of them this morning that they're also super excited about the opportunities that this combination presents.
That's great. Thanks. Just on the synergy number, I appreciate it's minimum, and I appreciate this is early days, but it just doesn't seem like a big number when you look at it, it's a low percent swing in your GP, and I think there's still a lot of agents that are using for sourcing. Presumably, you're going to leverage a lot of the apparel business sourcing, and if you get a couple of points there, that's 60 alone. And then the leases intuitively, presumably, there's going to be a lot of opportunity to overlap or leverage that and move leases that are in the twenties or maybe high teens into the single digits by bringing them to concession. But just wondering why you-
Great to hear that you're a believer, Ben.
I'm just-
I'm glad you're talking it up. Thank you. Look, you know-
I'm just trying to understand how you got to 30 instead of why you picked 30, not 50 or 60, because it's pretty easy to build a number that's much bigger, and I just, are you trying to take a conservative approach or how have you thought about that?
No, look, I mean, I think we've got an exhaustive list there around where we do think that there will be benefits generated from this combination. As you've indicated, we have said it's at least AUD 30 million, and we will be laser-like focused on which of the areas where we believe we should, you know, we should focus on from day one. And there are some, you know, a good number of categories here, whether it's anything from the expansion of Myer One through to, you know, how we source better. So there is significant opportunity here, and we will have a plan in place to make sure that we deliver these returns in the medium to longer term.
We do have an investor day in February, where we do intend to, you know, talk more broadly about the Myer group. But at this stage, we believe that this is, you know, a significant return for the business. You know, I think we'll continue to be ambitious and look for further opportunities, but at least at this stage, we're saying it's at least AUD 30 million.
Just final one from me. Just in terms of costs around implementing this, you've obviously got the shared arrangement that sort of goes both ways with Premier Investments. Are there gonna be any significant implementation costs? I'm thinking like, they're obviously developing their own loyalty program. Is that going to have to be written off? I'm just thinking about some of these costs that might come out for sort of one-off when this does settle, assuming it all gets approved, settles within my business.
No, Ben, no. No, that's not the way we're thinking about it. No, I mean, obviously, you've mentioned the TSA there, and that's really important for us because it gives us flexibility, and it ensures that over, you know, the next, you know, post-CGM and when we're into post-transaction, it gives us flexibility to work out what the right operating model is for our organization, and ensures that we de-risk, I guess, in a sense, de-risk the execution of this particular partnership. And it also just allows for an orderly separation. So I think it's a very sensible approach that we're taking, and it will be one that makes sure that we have the opportunity to think through what the right operating model is going forward. But to your answer, no.
Thank you.
... Your next question comes from Aryan Norozi with Barrenjoey. Please go ahead.
Olivia, thanks for your time. Just first one from me, just trying to suss out of the AUD 30 million of synergies you're targeting on retail price, what portion of that can you give us an idea is private label out of synergies in terms of sourcing and consolidating your scale points?
Yeah, look, I understand the reason why you're asking me the question, but we're not actually giving a breakdown. We have said, look, this is an opportunity for us. Obviously, the combination of our brands and Myer provide scale. And, you know, we'll absolutely be exploring that in due course, post-transaction. But we're not giving a breakdown by category at this stage.
Great. And maybe just qualitatively, not putting exact numbers on it, the store network bucket of that, which is obviously, for example, hypothetically, moving a Premier store into Myer and, and exiting from economic leases. Is that a material component of it, maybe qualitatively sort of talking about it? Or is it fair to say that most of it is the other, other savings and that's a smaller portion?
I think you're asking me the same question in a different way.
Different way? Yeah.
We're not going to give a breakdown. You know, in due course, when these synergies materialize, obviously we'll be providing more details to our shareholders. It is a focus for us. We will have a plan. We'll be methodical about the way we go about these synergies and these opportunities. You know, I think we will provide more information when we can, but at this stage, we're not providing it, providing a breakdown, but all you can hear from us is there are broad synergies. We will be disciplined and focused. There are ones to drive revenue. There are also synergies from a sourcing perspective and a cost perspective, and it should be the expectation of the shareholders that we will absolutely pursue this, pursue this post-transaction.
Great, and so last one from me. Just around the distribution center and the fulfillment side, or the supply chain side. So obviously, Myer's got their NDC. They have obviously got a lot of capacity that was planned for the next five or 10 years of growth. So what happens to that DC? Will it be consolidated into the Power Brands and sort of how do we think about the capacity once the, or if the merger happens?
Yeah, look, we think there's an opportunity. We've identified that there's an opportunity. You'll see that in our synergies list. We have four distribution centers, including the NDC, our national distribution center, which you're referring to in Ravenhall. Equally, Apparel Brands have two distribution centers, one here in Victoria and another in New Zealand, and it's an opportunity for us going forward to have a look at how our supply chain works and how we best optimize our network. We think there is opportunity and there's opportunity as we grow.
Importantly, in the distribution centers that Myer has, in Queensland and also in Victoria, there is room for growth. There is room for growth, and we'll just be working out the best way that we optimize both the Power Brands and Myer to make the most of these facilities, and that we can, you know, we can drive benefits for our customers and drive benefits for our store network. But early days, but it's on the list.
Great. Thanks very much.
There are no further questions at this time. I now hand back to Olivia for some closing remarks.
I'd just like to thank everyone for joining us this morning. As I mentioned, it is exciting news for both the Myer and the Apparel Brands team. We do have obviously a process to go through now. We do appreciate you calling in and we look forward to discussing and sharing more information with our shareholders towards the middle of December. Thank you for joining, and have a good day.
Yeah, that concludes our conference for today. Thank you for participating. You may now disconnect.